The South Korean Government has closed a US$344 million fund that gives international investors a play on small-capitalisation firms in the country's high-technology sector with the comfort of a bank guarantee. Claimed as the largest such Korean fund offered to foreign investors, proceeds will be invested in bonds issued by 59 Korean small-cap firms with equity participation provided by warrants. The fund uses a collaterised bond obligation structure where earnings from underlying stocks pay bond holders and equity participation is provided by the conversion of warrants. The collapse of last year's hi-tech boom left many small Korean firms cut off from conventional finance channels. In order to attract foreign institutional investors, the Korean Government's Small Medium Business Administration packaged the fund and the Korean Development Bank (KDB) is providing a credit enhancement. The Koromas fund originally aimed to raise US$300 million but strong demand among Asian and European investors saw it raised to US$344 million, according to Hong Kong-based ADM Capital, which will manage the fund. International investors were offered two kinds of notes. The senior A-notes have a credit enhancement from the KDB while the C-notes pay no coupon but provide upside through warrants on the underlying stocks. In the past similar credit enhancement facilities have been provided by Korean banks to give companies an artificially low cost of capital. Financial sponsors will draw no fees but be rewarded through free notes in the fund.